You are here: Home » Economy & Policy » News
Business Standard

MPC minutes: Unwinding high indirect taxes on fuel critical, says Das

Fall in inflation gives MPC room to continue to support growth in economy

Topics
MPC minutes | monetary policy committee | Shaktikanta Das

Subrata Panda  |  Mumbai 

rbi governor, shaktikanta das
Since June last year, inflation was breaching the upper tolerance threshold of the committee but in December it cooled to 4.6 per cent because of a fall in food prices and favourable base effects

With under control, the Monetary Policy Committee’s (MPC’s) job is to support growth because the economy had recovered well from the lows in the initial months of the pandemic, according to the panel’s members, who met in the first week of this month.

The minutes of the meeting show the (RBI) governor in his statement said: “Given the sharp moderation in along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based.” Ashima Goyal, external member of the MPC, said: “The current macroeconomic configuration and its expected future evolution imply there is space for the MPC to continue to support the revival of the economy with remaining in the target band.”

Since June last year, inflation was breaching the upper tolerance threshold of the committee but in December it cooled to 4.6 per cent because of a fall in food prices and favourable base effects.

ALSO READ: MPC minutes: Growth momentum needs to strengthen further, says RBI Guv

However, core inflation remained at elevated levels owing to the inflationary impact of rising crude oil prices and high indirect tax rates on petrol and diesel, and a pickup in prices of key goods and services, particularly in transport and health.

chart

According to the governor, proactive supply-side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel -- in a coordinated manner by the Centre and states — are critical to contain a further build-up of cost pressure in the economy.

In the meeting, the members unanimously decided to keep the benchmark rates unchanged and said they would continue with their accommodative stance as long as necessary -- at least during the current financial year and in the next one -- to revive growth on a durable basis and mitigate the impact of the pandemic, while ensuring that inflation remained within the target.

Michael Debabrata Patra, RBI deputy governor, said: “Overall, the near-term outlook for inflation appears less risky than the near-term challenges for growth, which warrant continuing policy support, at least until the elusive engine of investment fires and consumption, the mainstay of aggregate demand in India, stabilizes.”

Shashanka Bhide, external member, MPC, said: “An accommodative monetary policy stance is needed to strengthen recovery enabling expansion of both output and demand.”

“Monetary policy will need to lean against the wind to keep interest rates low to the extent possible. If central bank open market operation purchases are moderate, it entails the risk of crowding out of private investment; if they are large, it carries risk of reengineering inflation,” said Mridul K Sagar, executive director, RBI.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, February 23 2021. 00:45 IST
RECOMMENDED FOR YOU